Here is a step by step breakdown of the short sale process.
The steps for a short sale can be broken down into those listed below:
Fax authorization to foreclosing lender
- Follow up to make sure your authorization is on file
- Compile short sale documents
- Fax short sale package to lender
- Follow up to make sure your short sale package is received
- Talk with the loss mitigator to set up a BPO/Appraisal
- Meet and influence BPO/Appraisal
- Negotiate with loss mitigator
- Short sale accepted!
Starting the Process
Step 1: Fax in Third Party Authorization and requests for a short sale package, payoff, and reinstatement figures.
*Make sure that your authorization form has the homeowner’s name (signed and printed), address of the property, lender name, loan number, social security number, and is dated.
Call in to Customer Service, explain that you are working with a client in default, and check to see whether the authorization needs to be on file with customer service or with the loss mitigation department, or both.
Ask for the phone and fax numbers for each department.
Note: the customer service representative that you are speaking to may not give out the loss mitigation department’s phone and fax numbers until authorization is on file. Payoff and reinstatement figures for the foreclosing lender may need to be obtained from the lender’s attorney. Once authorization is on file, check on the status of your payoff request and if those figures do need to be requested from the attorney, the representative you speak to can provide you with the attorney’s contact information.
When you receive the correct phone and fax numbers for the loss mitigation department, ask how long it takes for the authorization to be on file.
Make sure you have the correct fax number and that your cover page is thorough and explicitly clear.
Specify the date you want your payoff and reinstatement figures good through, your phone number, your fax number, your name, and homeowner’s name.
Step 2: Follow up to make sure your authorization is on file. Various documents, including authorizations, are frequently lost and may need to be refaxed. By constantly following up, you will make sure that if anything needs to be refaxed, it can be done immediately so that no time is wasted.
Once authorization is on file, make sure to order a short sale package if it hasn’t already arrived. When doing short sales, some lenders prefer to receive their own short sale packages, not a generic one (please ask your Lender(s) what is required).
Check to make sure authorization is on file. At this time it is good to ask some additional questions such as: Is there a strict foreclosure or foreclosure sale date set? Who is the investor behind the loan? What type of loan is this? (Ex: conventional, adjustable rate mortgage, balloon, etc.) This additional information all factors in to how you’ll approach negotiations.
Step 3: Compile Short Sale Package
Gather all the needed documents required by the foreclosing lender. Make sure to stay on top of the homeowner or real estate agent or whoever sent over the property originally so that you’ll get the needed documents as soon as possible.
For any documents that cannot be obtained from the homeowner (i.e. tax returns, bank statements, pay stubs, etc.) make sure to have the homeowner write a brief explanation of why they cannot provide them and have them sign and date them. Other documents, such as the hardship letter or financial worksheet, must be included.
Make sure that the hardship letter addresses three things specifically: what occurred in there life to put the homeowner in default, when did it occur and/or how long they have been in their current situation, and what they have done to try and correct the situation
After all the documents have been received from the homeowner, call again and ask for the number it should be faxed to. Make sure that the package is 100% complete.
Step 4: Fax Short Sale Package to Lender
Make sure to have the correct fax number for either the correct department to submit the short sale package, or the correct fax number for the mitigator that is handling the file (if he/she has already been assigned).
With some lenders a call needs to be put in to the loss mitigation department immediately prior to faxing the short sale package. The reason for this is due to the fact that some lenders need to refer the file for a short sale. Otherwise, the short sale package will be thrown out without having a rep even look at it.
Step 5: Follow up to make sure your short sale package has been receivedCommonly it takes around 48-72 hours, from the date faxed, for documents to be scanned into the lenders’ systems. That is the best time to make your first follow up call. Continue to follow up as necessary until the package is received and all the documents are present.
Once the short sale package is received ask how long it will take before it is assigned to a loss mitigator. Ask when you should follow up and whether or not you should call the same phone number as before or a different number.
Note: This step in the process can potentially take some time, depending on the lender. The time between when a package is received, and when it is assigned can take anywhere from a week to a month. Some lenders may have what are known as “set-up” representatives. They will be the reps potentially responsible for ordering the BPO/Appraisal and organizing the package for the loss mitigator. Remember one of the big keys in short sales, follow up constantly!
Step 6: Talk with Loss Mitigator/Set-up Rep. to schedule BPO/Appraisal
Once the mitigator/set-up rep has agreed to order a BPO/Appraisal, ask them how long it will take to be contacted by an agent/appraiser, how long it will take for them to get the BPO/Appraisal back, and how long it will take them to make a decision.
Step 7: Meet and influence BPO/Appraisal
This is one of the most important steps in the short sale process. If the BPO or appraisal comes back too high, the deal will be challenging to get closed. It is one of the few parts of a short sale in which a high BPO or Appraisal could end the deal without any way to fix it.
Once the BPO/Appraisal is complete, you’ll need to wait for it to get back to the mitigator and for them to evaluate the offer against the BPO/Appraisal. Then your negotiations start.
Step 8: Negotiate with Loss Mitigator
Once the BPO/Appraisal has been reviewed with the current offer and short sale documents, the mitigator will either accept, decline, or counter the offer.If they accept, great! Then you can start preparing to close on the property If they outright decline the offer, then you’re going to need to prepare some extra information (usually pictures, repair estimates, crime reports, log of showings or listing history) to launch another assault. You may have to resubmit the entire short sale package or just the assisting documents. Either way, it will require several calls and some extra persuasion, and perhaps resubmitting a higher offer(s) to get the mitigator to take a second look.
If the mitigator gives you a counter offer, then you know, at the very least, they’re willing to play ball. Make sure to assert all of the information that you have to illustrate the value of the property
Step 9: Short Sale Accepted!
Once you gain acceptance on the short sale, send your short sale acceptance letter(s) and a copy of your estimated HUD1 (settlement statement) to your closing attorney of title agent/escrow agent.
